Saturday, May 23, 2009
Round 2 of The Great HPC coming later this year
Times: Mortgage ‘timebomb’ raises fears of a new wave of repossessions
Millions of homeowners with mortgage deals that expire over the next year are in for a nasty surprise as tighter lending criteria mean that they may struggle to remortgage, experts have warned.
With hundreds of thousands of borrowers already stuck on standard variable rates (SVRs), fears are growing of a sharp rise in defaults and home repossessions when the Bank of England begins to increase the cost of borrowing as early as next year.“This situation is a ticking timebomb. While interest rates are low, borrowers will be fine to sit on SVRs but once rates start to rise, which we expect to happen next year, payments could become unaffordable and lead to repossession for those who can’t cope.”
Posted by little professor @ 12:25 AM (2576 views) Add Comment
31 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. titaniccaptain said...
At some point the crash is going to go into free fall........houses will exchange in the majority for cash only and for next to nothing.
The dream of home ownership will be tainted and ownership with a mortgage will seen as a millstone and the con of property as an investment will be brought into its proper context........
http://www.economicvoice.com/blorumpost.php?blorum=3&post=783
But the media will still pump out the usual bulls**t through VIs and editorial political bias so no surprises there.
Unless the inflationists are right and the debt gets burned out but that's a small "if" IMNVHO (In My Not Very Humble Opinion)....
2. Beartil2010 said...
Good to see you Captain!
I feel the green shoots have well and truly died now. I haven't seen any positive news in any forum, paper, news outlet, for over a week now, and there have been several chunks of very ominous news.
This can only mean a resumption in the downward trend for housing.
3. crunchy said...
1. titaniccaptain
Lots of people think that inflation will save the housing market. I don't, Inflation will make house buying more expensive without wage inflation. Do you really think that wages will rise. I can't see that happening any time soon. I think the inflation aspect will be very negative all round.
4. titaniccaptain said...
@Crunchy
Alot (NOT ALL) of the inflation argument is based on 2 factors :-
1. Imported inflation due to a weak pound
2. The quantatitive easing spilling out from the bank vaults into the pockets of Joe Blogs.
And with the pound making gains and other currencies taking a knock I am not convinced on point 1 at THIS moment in time.
Point 2 is equally as unconvincing.....QE may make the banks more liquid but does that mean that the liquidity will spill out into our hands? no I think not.
If I was given the option of lending money to a sick person or a healthy person who would I lend to?(Forgetting charitable donations which banks do not do) in other words would you lend to the U.K. or more stable emerging economy?
5. titaniccaptain said...
Saying all that Jim Rogers isn't making the pound's battle any easier.......and losing the AAA rating is going to be a kick in the hairy paternal genetic coding rugby ball shaped holders...........but its relative to how other currencies are doing........which is not well.
6. alan said...
Crunchy,
There is no sign of wage inflation from my part of Essex!
TC,
I thought Gordo was committed to low IRs ....he will obviously ensure they stay low, and trash the £, won't he?
That said, there aren't that many people coming off fixed mortgage deals between now and "early next year", are there? And those coming off those deals were paying interest, weren't they? So, Joe Bloggs comes off his fixed 5.65% mortgage in June, gets a SVR of 3.5% for July and goes onto an enhanced mortgage rate (say) 6% in August. What's the problem? Halifax (for example) are taking 120% LTV if you have been a past customer ....
7. Tears_don't_work_for_the_repo_man! said...
If you think about it, home repossesions are currently very high considering we have record-low IRs. If you're presently trapped on your lender's SVR, due to low or negative equity, and you are struggling to pay your mortgage NOW, then you will have no chance of paying it if - or perhaps WHEN - interest rates increase. There might have been more repos during the recession of the early 90s, but IRs were a heck of a lot higher. Imagine if interest rates were 8 or 9 per cent now - there'd be carnage!
The Times article's right: we are sitting on a ticking timebomb. The irony is that as soon as the economy shows signs of recovery, the number of repossessions will soar as a result of increased IRs. Hold on to your seats, folks.
8. japanese uncle said...
To be perfectly honest, wage-cost spiral is most likely to be downward rather than upward. This is already happening in large companies not least Honda UK, where workers agreed to take 3% wage cut, as compromise to secure their employment. Unfortunately this will be the nationwide trend and gather pace, as workers=consumers will inevitably spend less and less in the foreseeable future, to suffocate the corporate profit severer and severer. Given millions jobless population, wage has no other direction to go. Japan's wage level is now back at 1994 level. Expect the same here. 85% HPC in London is not a day dream at all. I am just telling an ex-council one-bed flat in Tuffnel Park priced at 350K should go back to where it belonged in 1998. No one will be surprised to see this cut down to 35K. I can envisage even 25K.
9. stillthinking said...
This is like dominos in a circle. of course there is a huge danger to bursting servicing ability post deflation. the government cannot afford to continue to take funds because of interest, and they cannot afford dump public sector employees or raise taxes.
on the raising taxes note, which seems bad, this occurred to me. if taxes are raised, then affordability must go down. as affordability goes down, so do house prices, a little more than necessary. so, if you rent and are looking to ultimately buy, then its possible that the additional drop in house prices due to taxation(which you would have to pay at the end of the mortgage term..so each little bit is expensive) would be maybe -more- than the increase in tax! so although tax in the UK is too high and bad for the country etc, income tax in particular is house buyer friendly overall. swings and roundabouts.but you could also take that to mean that the government can't raise taxes -or- cut public sector employment without killing sustainable debt servicing, so sneaky inflation is the only route out, whenever they eventually manage that.
my meaning is for each 1K of additional taxation on income, house prices would fall 3.8K or 5K whatever. because taxation directly sucks funds from housing and also renting prices.
10. paul said...
So far, the UK's (and to some extent the US') experience of the credit crunch has been almost a carbon copy of Japan's.
The transmission mechanism is not working - the Bank of England can print as much money as it wants but people don't want it. They've been scared witless by the crunch and they are not returning to 2007 anytime soon.
11. enuii said...
Interest rates will go up before next year, Banks are currently pushing fixed rate savings accounts with 12 month lock-ins like crazy to their customers with returns of a around miserly 2.5%.
A) They want to lock the cash in.
B) They know rates will have to rise and will do so before the end of this year probably at the end of August / start of September.
12. alan said...
@ Stillthinking,
"they cannot afford dump public sector employees"
Why can't they dump the £100k diversity advisors then? I don't want to cut'n'paste Richard Littlejohn's articles in the Mail, but it's a start.
@ JU,
Locally, Ford cut most contractors hourly rates by 20% since Christmas. BT cut 12.5% of contractors day rates for those who weren't sacked.
@Paul,
"They've been scared witless by the crunch". Yup, spot on. The young homeowners I know, in their late 20's, early 30's, bought homes over the last 6 years. They are bustin' a gut to repay capital and deleverage.
13. happy mondays said...
@ enuii - why will rates have to go back up ? I'm interested rather than challenging, not being a financial whizz myself..Japan rates were held down for many years, so cannot that happen here or is it all about the QE and controlling inflation?
14. uncle tom said...
The CML's numbers for negative equity, and impending negative equity always seem far too low.
OK, very roughly, the average value of a mortgaged house is about £153k, and if you divide the total amount of debt secured on property (£1227bn) by the number of UK mortgages (11.1m) you get an average equity of just under 28%
BUT...
How many of those 11.1m mortgages are the remnants of loans taken out a long time ago?
Most people take out 25yr loans, but also quite often take out a fresh 25yr loan when they move house. Most people move house a few times when they are younger, before settling at one address.
My best guess is that around 40% of those 11.1m loans were taken out before the millennium, and have an average amount outstanding of no more than £50k each.
That leaves £1005bn to be shared between 6.7m mortgage holders, which works out at £151k each, leaving just 2% of equity on average. However, a large minority of those people will have climbed the ladder over the years and be less than 50% mortgaged.
Of those in negative equity already, few will be more than 20% in the red, so it seems impossible for the CML's figures of only 1m in negative equity and 1.1m with less than 10% to be true..
15. Maihem said...
@japanese uncle
Honda UK employees did NOT take a 3% pay cut - you've got to stop listening to the BBC. They can't be trusted. What the employees did was take some of their remuneration in time off work - spending it with the people they love and having lots of extra fun.
I'm quite jealous because they've managed to stick one to our commie overlords and started climbing out of the keynsian slavery trap.
16. little professor said...
happy mondays - JU will be able to provide a better answer, but here's my understanding of why Japan was able to keep rates low for so long without inducing inflation:
The yen carry trade - people would borrow money at low rates in Japan, take that money overseas and use it to fund lending or purchases in countries where the cost of lending was higher - e.g. the US. This was seen as free profit for some financial institutions - borrow at 0% in Japan, convert to US$, and lend out at 4 or 5% in the US. Thus no amount of printing or low interest rates could induce inflation, because all that money (around one trillion USD worth) was simply leaving the country for overseas.
The situation is different for the UK. Nobody wants to borrow in Britain and invest elsewhere. The demand for sterling is non-existent. Thus low interest rates and the mass printing of money will inevitably lead to high or hyper inflation.
17. happy mondays said...
Thanks LP, the fog has lifted a little...
18. Jayk said...
There's The Times, up to their usual ramping tricks again.
Oh no, wait a minu
19. japanese uncle said...
LP
You offered perfect explanation.
After all UK is an economy with enormous savings deficit, thus desperate to solicit investment from overseas to balance the book, Japan is an economy with huge savings suplus. Downgrading of UK's AAA rating could trigger another rough ride.
20. enuii said...
happy mondays - LP beat me to it and answered your question perfectly. Also Japan had and still has a large industrial base i.e. a useful economy and is the home base of many quality global manufacturing companies, we are not anymore.
21. mark wadsworth said...
@ UT comment 14, mortgages are fairly evenly spread between 1% of value to about 110%, according to Bank of England (and I've no reason to assume this isn't true)
From compiling various different sources, it appears that there are currently nearly two million in Nequity - it's about 100,000 mortgages going into negative equity for every 1% fall in house prices.
22. confused76 said...
Agree with LP about (hyper)inflation risk... Risk? not a risk anymore, but certainty... have you checked prices lately? and there will be a big jump in prices over the summer. at the end of the day capacity has been slashed in every industry. prices have been sustained and will rise to restore profits
about the next wave of HPC... I do not think in the shape of a second sharp drop, more like a L shape recovery with nominal prices drifting some 5%-10% further down but any price recovery postponed to the mid 10's. In london, agents are already singing the Olympic anthem, but if anything the Olympics will help short term rentals and hotel rates.
23. bellwether said...
The legal profession is either laying lawyers, cutting to 4 day weeks, increasing holidays on little/no pay, banks and other elements of financial sector also being cut, all aspects of service industry, public sector will have to go if UK not to go bust altogther. deflationary spiral made worse by increasing export costs.
24. bellwether said...
sorry importing costs. Wondering if this sterling rally once done (already up to £1/ $1.60 from low of $1.36) might be a good opp to get out of sterling altogether and into other currencies. Other countries have problems but ours seem to be a unique blend of all the bad bits, huge soverign and personal debt, impossible housing bubble, growth predicated on credit, outsized financial sector. Even during the global boom our growth was unimpressive and based soley on credit growth. I cannot see how we get out of this other than a lot poorer. Our currency becoming trash is not a certainity but then also not anything as unlikely as some suggest
25. japanese uncle said...
At the initial stage, prices were higher in general thanks to the GBP depreciation, etc., but subject to the pure market force based on supply and demand, many of the goods and services are marked down or simply discontinued (as marketing them is no longer economically viable, which is often the case in the higher end products) in the face of the consumers' wrath. Look at the Tesco shelves displaying Rowes honey line (30% marked up since 2007), almost untouched by the shoppers at all times. I can envisage bankruptcy of the firm. There are alternative venues like ALDI and LIDL (Viva Free market!) offering superior products at cheaper prices. In fact selective enough consumers these days are spending less for the basket of identical contents than last year. As I have been repeatedly mentioning, 'When the money is gone, it's gone' seems to have started to appear in full view.
26. bystander said...
While we discuss the wage spiral of mortal taxpayers let us not forget the bankers who are busy awarding themselves 50% salary increases to make up for their loss of bonuses. Everyone else suffers but these banksters are going to alright all over again. As has been saidmany times: 'you couldn't make it up' , but then again why would you need to as the banksters have written the rules all over again to the same tune.
27. peeping tom said...
Back in the 1970s commodity inflation was accompanied by wage inflation, meaning that many people paid off their mortgages quicker than they had anticipated. However, the UK is now experiencing commodity inflation, because of currency devaluation, accompanied by wage *deflation* (eg the Honda pay agreement); in other words a double squeeze on disposable incomes. How on earth this can lead to an economic 'recovery' is beyond comprehension. Currency devaluation can only help exports when there are customers abroad who want to buy the products. IMO we are headed for a worse recession than anywhere in the Eurozone (even Ireland and Spain).
28. letthemfall said...
Another difference between Japan and here is the attitude towards spending and saving. The Japanese kept saving and refused to spend, whereas over here we borrowed and spent like there was no tomorrow. What we don't know is the extent to which we will cut spending now. If employment carries on rising, people worry more and more about the future, perhaps we will see spending fall steadily. Maybe we'll yet have deflation.
29. house said...
In the 1930's the welfare state was almost non existent. But now the new generation has accepted the fact that if I do have any money and also if I loose my job then the state will have to look after me. Be it with basic needs but they will not go hungry and somebody once described to me that the safety net of welfare state has become a very confortable "hammock".
The Asian's have a different view if you get into difficulty with debt. It is all about pride but this was my experience over 30 years ago and I can only assume it is still the same.
Any views on this.
30. letthemfall said...
house
The safety net of the welfare state is not much to rely on - it's barely subsistence level. I doubt very much that it encourages people to spend unwisely. It is true that there is no embarrassment about debt now, though there was back in the 30s, possibly something to do with the poor laws of Victorian times. These things are complex but I imagine the growth of "financial services" has much to do with the borrow-pay-later culture we have now. As for the argument that the absence of a welfare state ensures people get up and work for a living, you only have to look at the tent cities in America to see the flaw in that.
31. house said...
@28 letthemfall
Thank you for your comments. Lets hope the borrow-pay-later culture is now on a decline, this would mean that no amount of QE would make people to borrow money unless it is free money. This is good news, if this is the case then all asset values have to fall as nobody would be tempted to invest in any kind of ponzi scheme because the asset value is going down or at a plateau but not going up. This discourages people from investing to make a quick buck.
Do you agree ?